World markets lower as Greece, China worries weigh

Posted: April 27, 2010 - 6:13am

LONDON (AP) — Greek shares led the global stock market retreat today amid mounting concerns about the country's ability to tap a bailout facility, while stocks in Shanghai dropped sharply on fears that Chinese authorities were preparing measures to cool down the economy.

In Europe, the FTSE 100 index of leading British shares was down 26.36 points, or 0.5 percent, at 5,727.49 while Germany's DAX fell 13.80 points, or 0.2 percent, at 6,316.30. The CAC-40 in France fell 27.05 points, or 0.7 percent, at 3,970.34.

Wall Street was poised for another flat performance following Monday's lackluster performance — Dow futures were up 5 points at 11,156 while the broader Standard & Poor's 500 futures was steady at 1,208.

Once again, the Greek debt crisis was at the forefront of investors' attention despite last week's request by the Greek government to tap a rescue package from its 15 partners in the eurozone and the International Monetary Fund.

However, with German Chancellor Angela Merkel pursuing a fairly hardline stance towards the release of the funds ahead of a May 9 election in North Rhine/Westphalia, Greek bond and share prices continued to remain under severe pressure. By early afternoon Athens time, the main composite ASE index was down a further 2.7 percent at 1,755.60 while ten-year bond yields remained near 12-year highs.

"The situation in the Greek financial market has descended into chaos," said Jeremy Batstone-Carr, head of private client research at stockbrokers Charles Stanley. "Investors hate delay during times of crisis...two weeks or more is a long time to wait in times of crisis."

Greece has to make its next batch of debt repayments on May 19 — whether it gets the money in time is now in question.

Even if it does receive the bailout funds in time, there's a growing consensus in the markets that it won't be enough to prevent a restructuring of the country's debt. Investors increasingly think that the end-game will be a change to the terms of the debt — that could involve payment extensions or payment reductions.

"Markets don't react well to uncertainty...Greece needs more money than originally suggested, a longer period of time to cut its deficit and a greater period of time to repay it," said David Buik, markets analyst at BGC Partners.

Another loser from Greece's debt woes is the euro, which fell another 0.3 percent to $1.3352.

While Greece's debt crisis continues to dominate headlines, there is a lot of economic news this week that could have a marked impact on investor sentiment — most important will likely be Wednesday's rate-setting meeting of the U.S. Federal Reserve and Friday's first estimate of U.S. economic growth for the first quarter of the year.

Even if the U.S. economic news cements market expectations that the world's largest economy is recovering solidly, analysts said the Greek debt crisis could continue to weigh on sentiment.

Also denting confidence today was ongoing anxiety about China, where the government has taken a series of steps in recent months to bring down property prices and avert asset bubbles.

Elsewhere, South Korea's market was off 0.2 percent despite data showing that the country's economic growth accelerated sharply in the first quarter of 2010. Gross domestic product expanded 1.8 percent in the January-March period from the fourth quarter last year.